Mistakes Indian businesses should avoid when receiving international payments

Picture this: A textile manufacturer in Gujarat, lands a lucrative deal with an American fashion house. The excitement is palpable, but as the first payment arrives, the business owner is shocked to find that the final INR amount isn’t what they expected–it’s much lower than the invoice amount.

This scenario is all too common for Indian businesses and independent professionals venturing into the global marketplace.

In recent years, India has seen a surge in SMBs participating in international trade. From software services in Bangalore to handicrafts in Jaipur, businesses across the country are tapping into global opportunities. However, managing international payments can be complex and costly if not done right.

This article delves into five mistakes that Indian businesses and independent professionals often make when receiving international payments. By understanding and avoiding these common errors, they can safeguard their profits, ensure smooth cash flow, and build stronger relationships with international clients.

For many Indian SMBs, the excitement of securing an international client can overshadow the nitty-gritty of transaction costs. However, overlooking these fees can significantly eat into profits.

Consider a software development firm that charges ₹5,00,000 for a project. If they're not careful, they might end up losing ~ 2% to 3% in transaction fees alone. This is money that could have been reinvested in the business or contributed to the bottom line.

To avoid this, businesses should:

• Thoroughly research and compare the fee structures of different payment providers

• Consider specialized international payment providers that often offer better rates than traditional banks

• Negotiate with their bank for better rates, especially if they have a high volume of international transactions

The Indian rupee's value against a major currency like the US dollar can fluctuate significantly. For businesses that don't account for these changes, it can lead to unexpected losses.

If businesses quote prices in US dollars without considering potential fluctuations, a strengthening rupee could erode their profit margins. Conversely, if they're too conservative in their pricing, they might lose out on potential gains.

To mitigate this risk:

• Use providers that allow you to lock in exchange rates for future transactions

• Diversify the client base across different currency zones to spread the risk

• Stay informed about economic factors that might influence exchange rates

In the digital age, the threat of cyber fraud looms large, especially in international transactions. Many Indian SMBs, in their eagerness to simplify the payment process for international clients, may inadvertently expose themselves to security risks.

To enhance payment security:

• Work with providers who implement robust security and verification processes for all international transactions

• Transact via a secure platform

• Educate staff about common fraud techniques and cybersecurity best practices

The regulatory landscape for international transactions can be a minefield for the unprepared. Many Indian businesses, especially those new to international trade, underestimate the importance of staying compliant with both Indian and international regulations.

Payments can be held up for months due to incomplete documentation required under the Foreign Exchange Management Act (FEMA). This not only disrupts cash flow but can also add strain to the customer relationship.

To navigate the regulatory maze:

• Stay updated on RBI guidelines for international transactions

• Ensure all necessary documentation is in order, including invoices and FIRA

• Consider consulting with an expert specializing in international trade laws to ensure the transactions are compliant

• Maintain clear and transparent records of all international transactions

Delayed payments can wreak havoc on a business' cash flow, affecting everything from day-to-day operations to long-term growth plans.

To better manage cash flow:

• Negotiate your payment terms in advance to accommodate your cash flow requirements. For instance, consider requesting partial upfront payments for large orders

• Use platforms that offer faster settlements

• Maintain open lines of communication with international clients about payment schedules

• Cushion against payment delays by considering supply chain financing and factoring

As Indian SMBs continue to make their mark on the global stage, mastering the art of receiving international payments becomes crucial. By avoiding these five common mistakes businesses can turn international opportunities into sustainable growth. Here are a few best practices that can help Indian businesses streamline international payments.

The key lies in being proactive, informed, and adaptable. With the right strategies in place, businesses can navigate the complexities of international payments with confidence, ensuring that their global ventures are not just ambitious but also profitable.